ASEAN investment scrutiny casts a shadow on Hong Kong

Hong Kong has functioned as a discreet and effective channel for Chinese outbound investment in Southeast Asia since the early 2000s. But across ASEAN, countries such as Indonesia, Vietnam and Malaysia are adopting tighter transparency powers.

In turn, this is raising the pressing question of whether Hong Kong can still shield Chinese capital in the region.

The city’s legal autonomy and commercial reputation has historically distinguished it from mainland China, granting it political neutrality in the eyes of many regional Southeast Asia governments. But that perception is fading. 

Since the 2020 National Security Law, Hong Kong has moved closer to Beijing politically and administratively. As ASEAN regulators tighten disclosure rules, they increasingly focus not just on corporate registration but on actual ownership, board composition and strategic ties.

While governments across Southeast Asia are not explicitly targeting Hong Kong, policy shifts suggest rising caution. 

Sensitive sectors

Vietnam and Indonesia now require detailed ultimate beneficial ownership certification and disclosure of actual shareholder nationality. 

Last month, Indonesia’s Investment Coordinating Board began enforcing a revised ultimate beneficial ownership rule. It required offshore investors to disclose their controlling shareholders down to the natural person level.

Companies that fail to disclose the information face sanctions, such as blacklisting or suspension of access to Indonesia’s General Legal Administration system.

In Malaysia, investment approvals in sensitive sectors such as telecommunications and transport increasingly demand clear origin tracking.

These changes reflect not only concerns about legal compliance but also about Hong Kong’s evolving strategic alignment. Once seen as commercially driven, the city-registered investments are now assessed through a geopolitical lens.

ASEAN’s tightening of ownership transparency rules is not just a domestic policy trend – it also reflects deeper shifts in the international trade environment. 

One key driver is prolonged US-China trade tensions, which prompted many Chinese firms to reconsider their export routes and operational structures. 

Faced with rising tariffs during Donald Trump’s first presidency, they began shifting parts of their manufacturing and logistics chains to Southeast Asian nations, especially Vietnam. 

This “great reallocation” of supply chains enabled low-cost economies to expand their share of US-bound exports, reflecting China’s new economic and geopolitical strategy.

Advanced manufacturing

As a result, ASEAN regulators have grown more sensitive to the possibility that Hong Kong-registered entities are being used to bypass geopolitical trade barriers. The scrutiny applied to Hong Kong capital is part of a broader recalibration driven by great power rivalry.

The United States has also begun to pressure ASEAN governments to align with its export control regimes and trade enforcement priorities, especially in sensitive industries it considers strategically vital.

They inclide semiconductors, energy and advanced manufacturing. At the same time, Washington has encouraged ASEAN governments to impose export control standards and strengthen enforcement capacities in line with US priorities. 

This has translated into greater vigilance regarding firms with indirect Chinese links – including those based in Hong Kong, which are occasionally suspected of being used to evade American sanctions.

Washington’s US-China Economic and Security Review Commission has noted that ASEAN governments have begun enhancing customs collaboration and compliance oversight with American agencies. 

Through tools like monitoring and joint data sharing, regional authorities have become more cautious about opaque investment structures tied to mainland Chinese and Hong Kong entities.

International reporting has drawn attention to the city-based intermediaries allegedly engaged in indirect trade with embargoed regions, most notably Iran. 

Financial risk consultancies and US policy institutions have found entities operating out of Hong Kong involved in re-exporting dual-use technologies or facilitating energy-related services that may infringe Western sanctions frameworks. 

Though such transactions might remain technically legal under Hong Kong law, they have raised diplomatic sensitivities across Southeast Asia.

Secondary sanctions

For ASEAN governments seeking to avoid entanglement in secondary sanctions or jeopardising trade ties with the United States and European Union, the risk of dealing with opaque Hong Kong-registered actors has increased significantly.

ASEAN host nations, conscious of the threats posed by secondary sanctions, are responding with tighter due diligence protocols. 

Several governments in the region have begun blacklisting high-risk suppliers and enhancing background checks to identify indirect links to sanctioned actors. 

These efforts reflect a clear regulatory evolution away from the formerly hands-off stance towards a model that prioritises reputational integrity and alignment with international norms.

For Hong Kong, the erosion of neutrality has strategic consequences. It weakens the city’s value as a financial intermediary and exposes Chinese investors to greater regulatory and political scrutiny. 

As more Chinese firms bypass Hong Kong and invest directly through ASEAN operations or alternative hubs like Singapore, the city risks marginalisation. 

Once considered a neutral bridge, the city is now viewed by many Southeast Asian regulators as an extension of Beijing’s economic reach.

These shifts are visible in investment statistics. ASEAN-based deals that once routed capital through Hong Kong are increasingly structured via Singapore or direct mainland subsidiaries. 

Geopolitical tensions

Indeed, a 2024 AMRO working paper shows that Hong Kong’s share of ASEAN+3 foreign direct investment fell from around 27% in 2010 to about 21% by 2022, while Singapore’s share rose from approximately 13% to 23%. 

This is clear evidence that Chinese capital is being redirected within the region. Whether this shift is permanent remains to be seen. 

But it is clear that Hong Kong’s shielding capacity is under pressure from legal reforms, geopolitical tensions and strategic calibration across the ASEAN region.

Wang Zhenghao is a dual Master’s candidate at Peking University and Seoul National University.

This edited article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.